Intraday Market Update
Traders returned to work after the three day holiday weekend to a hurricane of worries sweeping through the market, including concerns over the health of European banks and BP's failure to contain the oil spill in the Gulf of Mexico. Oil service stocks are getting pummeled again, down -5.50% in mid session trading. The oil services sector, as measured by the OSX, is down -19% since its intraday high on May 13th and -29% since its intraday high on April 26th. This has been a drag on the performance of the S&P 500 and it appears there is no end in sight, at least until the oil spill is contained. Asian and European markets were also under pressure on Tuesday after Chinese PMI data for May hit three month lows and commentary in the press about big European bank write downs may be coming. The EUR/USD printed a fresh four year low at 1.2111 overnight, but has since reversed back up to almost 1.23. It appears the EUR/USD may be headed to 117.00 or at least to 1.1882 which is the 200-month SMA. Monthly chart of the EUR/USD:
S&P 500 futures printed a low of 1,069 in the overnight session but rebounded to open the pit session at 1,078.25 (down -9 points from Friday's close). But at 10:00 AM equities were catapulted higher after strong economic reports from the ISM Manufacturing Index and Construction Spending. The SPX hit an intraday high of 1,094 after the news before pulling back to 1,084, but is now trading in the upper end of today's range near 1,090. All of the indexes are teetering between positive and negative territory. The small caps as measured by the Russell 2000 is the weakest index, down -0.85%.
The US manufacturing sector expanded for the 10th straight month in May but at a lower pace than in April. The ISM index of national factory activity slipped to 59.7 in May from 60.4 in April, but the headline number beat consensus estimates of 59.0 according Reuters. The strongest component in the report was employment which rose to 59.8 and the highest level since May 2004.
Meanwhile, expiring tax credits for homebuyers and the recent surge in home sales has carried over to strength in construction activity. Construction outlays in April surged +2.7%, following a +0.4% rebound in March. The consensus estimates had expected no change for April. The April boost was led by a jump in private residential construction which gained +4.4% after no change in March. Public construction increased +2.4% while private nonresidential construction increased +1.7%. The demand pulled forward in new home sales by the expiring tax credits has reduced new home inventories enough to give homebuilders confidence to increase the pace of new construction, however, the gains are coming off of extremely low levels.
Fears are deepening about the viability of offshore drilling and traders are running for the exits in oil services names. Shares of BP are down -11% after its "top kill" method to contain the leaking oil well has failed. Anadarko Petroleum, one of the partners in the well, is down -14.50%, while offshore development firm ATP Oil & Gas (ATPG) is down -13.25%, jus to name a few.
Prudential PLC's offer to buy AIG's AIA unit appears all but dead after negotiations over pricing of the unit fell apart over the weekend. Prudential was looking to cut the original price tag of $35.5 billion due to the growing possibility that it could not win shareholder approval for the deal. Prudential lowered the offer to just above $30 billion, but AIG rejected the offer. Investors are relieved as Prudential's US listed ADR (PUK) is up +8.5%. AIG is down -1.25%.
Commodities are well off of their lows and mostly higher. Front-month crude is about breakeven but is $2.50 off of its lows at $74.00. Gold is higher by +1.00% to 1,225 per ounce while silver is higher by +0.75%. Natural gas is lower by -1.25% and copper is off by -1.00%.
International markets were mostly lower on Tuesday with the exception of Germany which posted a +0.28% gain. Notable losers in the Asia-Pacific region include Hong Kong (-1.36%), China (-0.92%), Japan (-0.58%), and Australia (-0.37%). European markets were mostly lower with London (-0.48%), Spain (-0.64%), and Italy (-1.35%) posting the biggest losses.
Core Sector List:
Overall reading: 9 sectors declining, 7 sectors advancing.
Strongest Sectors: Gold Miners, Pharmaceuticals, Software
Weakest Sectors: Oil Services, Oil, Home Construction
S&P 500 - Daily and 30-minute Intraday Charts:
Dow Jones - Daily and 30-minute Intraday Charts:
NASDAQ - Daily and 30-minute Intraday Charts:
Russell 2000 - Daily and 30-minute Intraday Charts: